IMPACT OF BROAD BLACK ECONOMIC EMPOWERMENT ON THE GROWTH OF SMALL BUSINESSES IN THE RUSTENBURG LOCAL MUNICIPALITY
MATTHEWS SET ALA RAMOTSHO
Dissertation submitted in partial fulfillment of the requirements for the degree of MASTERS IN BUSINESS ADMINISTRATION at the NORTHWEST UNIVERSITY
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North-West University Mafikeng Campus Library
Supervisor: Prof Erik Schmikl
September 2011
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Declaration
I declare this research is my own work. It is submitted in partial fulfillment of the
requirements for degree of Masters of Business Administration at the Northwest
University. It has not been submitted before for any degree or examination at any other university. I further declare that I have obtained authorisation and consent to carry out this research.
...,.
Abstract
The introduction of black economic empowerment legislation marked an important milestone for the economic development of black people. The ANC led government has managed to achieve a shift in the political landscape of South Africa in the 16 years of its rule. However, it remains to be seen if·the country would follow the intended changes towards economic development. The political achievement of the forces of change set in motion unto date could be easily reversed if economic parity is not achieved in a constructive manner supported by the will of the nation as guided by the current South African constitution.
The government in its formative years made it its goal to pursue equity and wealth redistribution with the hope of growing the economy. These goals have been difficult to achieve, thus challenging the government of the day in its attempt to eradicate poverty and create a sustainable economy. The government approach to local economic development has mainly been centered on the establishment of small businesses that would hopefully provide employment to a II businesses the
been mixed reactions towards the implementation of BEE. Some critics regard BEE as a way to benefit mainly connected individuals rather than the mass of the previously disadvantaged. On the other hand, South Africa's corporate sector continues to be dominated, managed and owned by the minority whites. As a whole, whilst affirmative action has progressed, imbalances still exist in that women appear to be still disadvantaged in certain sectors of organisations regarding management positions and shareholding within companies.
Although Black Economic Empowerment tends to increasingly lead to white economic disempowerment (primarily white males). it nevertheless remains evident that for black~ to enter into business is still marred with problems. It is apparent from the critics that not only blacks are affected, also whites need some kind of relief from deprivation; this would avert the next generation of poor whites. The research results reveal some of the effects which BEE has on the growth of small businesses and on black people in general.
Acknowledgements
I wish to express my sincere thanks to everyone who has contributed to this project. The following ~eserve mention and acknowledgment for their
contributions:
• My Creator God for the talent and inspiration to complete this proj~ct. • The warm support and encouragement from my wife Mumsy and my family. • To Professor Erik Schmikl, my heartfelt gratitude for his guidance, patience
and support. He never got tired to communicate the all important information and advise and coach, even when the time was short.
• To David Swanepoel for his editorial assistance to enhance the readability and linguistic aspects of this dissertation.
• The Rustenburg business community for their swift response to my research questionnaire contributing the data for analysis of the reported findings. • Lastly, to my friends who now and then called me to enquire about my
progress regarding my research and who provided throughout their caring and inspiration that spurred me on
List of Acronyms
List of Acronyms that will always be referred to:
ANC African National Congress
ASGISA Accelerated Shared Growth of South Africa BBBEE BBSD BEE BEE COM BOSMess CBO COSATU CPPP OSSA DFI EAP ESC ESOP GOP GEAR HOPs IDC ISRDS LSBC LED NED LAC ppp RDP SME SMME SR SMED
Broad Based Black Economic Empowerment
Black Business Supplier Development Programme Black Economic Empowerment
Black Economic Empowerment Commission Black Owned Small and Medium Enterprises
Community Based Organizations Congress of South African Trade Union
Community Public Private Sector Partnership Development Bank of South Africa
Development Financial Institutions Economic ally Active Population Entrepreneurial Support Center
Employee Share Ownership Programme Gross Domestic Product
..,.
Growth, Development and Redistribution
Historically Disadvantaged Persons
Industrial Development Corporation
Integrated Sustainable Rural Development Strategy Local Business Centre
Local Economic Development National Economic Development
Public Private Partnership
Reconstruction and Development Programme Small and Medium Enterprise
Small, Micro and Medium Enterprise Social Responsibility
Small and Medium Enterprise Development Programme
TABLE OF CONTENTS Declaration ... i Abstract. ... ii Acknowledgements ... iv List of Acronyms ... v List of figure ... : ... x List of tables ... x
CHAPTER 1 Nature and scope of the study 1. Introduction ... 1
2. Problem Statement. ... 2
3. Nature of the Problem ... 3
4. Objectives of the Study ... .4
4.1 Primal Objectives ... .4
4.2 Sub-Objectives ... 4
5. Primal and Sub-Research Questions ... 5
6 Scope of the Study ... 6
7. Importance of the study ... ~ ... 6
8. Study Environment ... 7
9. Clarification of Concepts ... 7
10. Summary ... 8
CHAPTER 2 Literature Review 2.1 Introduction ... 10
2.2 Historical origins about aspirations about empowerment ... 11
2.2.1 Black Economic Empowerment(BBE) ... 13
2.2.2 Black Economic Empowerment and the Constitution ... 13
2.2.3 Results of the first phase BEE implementation ... 15
2.3 Broad Based black Economic Empowerment (BBBEE) ... 16
2.3.2 BEE Codes of Good Practice ... 17
2.3.3 BEE Score Card ... 19
2.3.4 Verification Age:ncies ... 19
2.4 The role of stakeholder in small business development. ... 20
2.4.1 Municipalities and BEE ... 22
2.4.2 Restructuring,PPPs and Licensing ... : ... 22
2.4.3 Role of Private Sector ... 23
2.4.4 Role of Civil Society ... 23
2.5 Factors of Black Economic Empowerment. ... 24
2.5.1 Ownership of the economy ... 24
2.5.2 Start-up Businesses ... 27
2.5.3 The funding mechanism of businesses ... 28
2.5.4 Distribution of Income ... 30
2.5.5 Employment Equity ... 31
2.5.6 Skills Development ... 33
2. 5. 7 Human Resource Development..: ... 33
2.5.8 Affirmative Procurement ... 34
2.5.9 Rural Development and Access to ..._ Land ... 35
2.6 Summary ... 35
CHAPTER 3 Research Design and Methodologies 3.1 Introduction ... 37 3.2 Research Design ... 37 3.2.1 Problem Definition ... 37 3.2.2 Objectives ... 39 3.2.2.1 Primary Objectives ... 39 3.2.2.2 Secondary Objectives ... 39
3.3 Population and Sampling ... 39
3.3.1 Sampling Frame ... .40
3.3.2 Sample Size ... 40
3.3.3 Sampling Method ... 40
3.3.4 Target Population ... .41
3.4 Data Collection Methods ...... 41
3.4.1 Preliminary Study ... .41
3.4.2 Questionnaire Design ... .41
3.4.3 Validity and Reliability of Questions ... 43 3.5 Procedures used for Data Analysis ... · ... .43
3.5.1 Data Preparation ... 44
3.5.2 Quality of Data ... .45
3.5.3 Measurements ... 45
3.5.4 Quality of Measurements ... .46
3.5.5 Validity and Reliability in Measurements ... 46
3.5.5.1 Validity ... 46
3.5.5.2 Reliability ... 48
3.6 Summary ... 49
CHAPTER 4 Data Analysis 4.1 Introduction ... 50
4.2 Analysis of biographic data '('Section 1 of the Questionnaire) ... 50
4.2.1 Distribution by organizational type and economic sector. ... 50
4.2.2 Length of services, educational qualifications and racial groups ... 51
4.2.3 Number of employees by age, and gender distribution ... 52
4.2.4 Provincial residence and type of residence ... 53
4.3 Analysis of responses to BBBEE ... 53
(Section 2 of the Questionnaire) 4.4 The role of the stakeholders in small business development.. ... .. 55
(Section 2 of the Questionnaire) 4.5 Factors of Black Economic Empowerment. ... . 58
4.5.1 Ownership of the economy ... 59
4.5.2 Start-up business ... 61
4.5.4 Distribution of the income ... 69
4.5.5 Employment Equity ... 70
4.5.6 Skills Developn:tent. ... 72
4.5.7 Human Resource Development. ... 74
4.5.8 Affirmative Procurement ... 75
4.5.9 Rural Development and Access to Land ... 77
(Section 2 of the Questionnaire) 4.6 Summary ... 77
CHAPTER 5 (Conclusion and Recommendation) 5.1 Introduction ... 81
5.2 Summary overview of the chapters ... 81
5.3 Objectives and research questions of the study ... 82
5.4 Shortcomings of the study ... 82
5.5 Key findings and recommendations ... 83
5.6 Areas of further research ... 84
5.7 Conclusion ... 85
~ BIBLIOGRAPHY ... 87
List of figures Figure 1.1 Rustenburg Local Municipality Map) ... 1
Figure 2.1 Codes of Good Practice ... 19
Figure 3.1 The Components of an Attitude ... .42
List of tables Table 4.1 Distribution by organization type and economic sector ... 50
Table 4.2 Number of organizations by Economic Sector ... 51
Table 4.3 Desired organizational level within 3 years ... 51
Table 4.4 Length of service in the industry sector ... 52
Table 4.5 Highest Qualification ... 52
Table 4.6 Sample distribution by population group ... 52
Table 4.7 Number of. employees within the organization ... 52
Table 4.8 Province and type of settlement.. ... 53
Table 4.9 The role of stakeholders in small business development.. ... 56
Table 4.10 Ownership of the Economy ... 59
Table 4.11 Experience of small business failures ... 61
Table 4.12 Factors that impact on small businesses ... 62
Table 4.13 Impact of capital on small business development.. ... 64
Table 4.14 Record of possible competition ... 64
Table 4.15 The effect of BEE legislation on small business development.. ... 64
Table 4.16 The impact of the quality of employees on start-up businesses .... 64
Table 4.17 General perception about entrepreneurship ... 65
Table 4.18 The services small businesses would benefit from ... 66
Table 4.19 Government support to small businesses ... 66
Table 4.20 Funding mechanisms ... : ... 67
Table 4.21 Distribution of income ... 69
Table 4.22 Gender participation in entrepreneurship development ... 70
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Table 4.23 Skills development of entrepreneurships ... 72Table 4.24 General perception about Human Resource Development ... 74
Table 4.25 Affirmative Procurement.. ... 75
Table4.26 Rural Development and Access to Land ... 77
APPENDIX A: RESEARCH QUESTIONNAIRE ... 86 APPENDIX 8: THE GENERIC SCORECARD AND QUALIFYING SMALL
-CHAPTER 1: NATURE AND SCOPE OF THE STUDY.
1. Introduction
Rustenburg is situated in the Southern region of the North West Province, most of the economic activity happens in this part of the province. The province recorded an economic growth rate of 4.9% in 2004/05 compared with 4.5% in 2003/04. The largest contributors to the GOP of the province in 2004 were the mining and quarrying industries (24.9%), finance, real estate and business services (13.6%) and the general government services sector (12.1 %).
Of the 3,374,200 people living in the North West, 65% live in the rural areas (Mid -Year Population Estimates, 2006). The official unemployment rate is 31.8% (Labour Force Survey, March 2006) Rustenburg is the economic hub of the Northwest Province. Because of the platinum mines it has attracted migrant workers from as far afield as the neighbouring SADEC countries. Statistics South Africa census of 1996 to 2006 indicates an average annual growth of 1.6%.However, the population was estimated to be in the vicinity of 457,9876 with a population density of 56.11 in 2006.(Giobal Insight, 2007). If one t~es into account the current .development in South Africa's economy, it is evident that Rustenburg, like other developing economic locations, is still reeling from the previous economic turmoil, thus aggravating employment statistics which are already at alarming proportions.
While the majority of people are employed in the mining sector, the retail sector provides employment for the majority of woman who had found themselves marginalized by the mining sector. However, the development of this sector in the Rustenburg area is highly dominated by big businesses owned by whites, Indians and foreigners such as Nigerians, Malaysians, Egyptians and Ethiopians involved in small scale business as hawkers. It raises a serious concern about the participation of the previously marginalized population sectors of South African population especially black people residing within the local community. Various pieces of government legislation such Broad Based Black Economic Empowerment (2003),
The Employment Equity Act, the Affirmative Actions Act, Skills Development Act and Competitions Act seems to have had little effect on the growth of small businesses and generally on the development of black people and the eradication of poverty.
2. Problem Statement
The accomplishment of political freedom has improved the need to focus more attention on social challenges. Since the inception of democratic government 1994, Antonites (2003:150) reports that certain vital economic and social challenges, such as unemployment, poverty, and inequality, as well as policies and practices that excluded the majority from participating in the mainstream economy, remain unresolved. The development of small businesses is seen as a solution to the ever-increasing unemployment. However, the failure to sustain the growth of these entities sheds some doubts on whether the implementation of government legislation of BBBEE Act (Act 53 of 2003) has had any impact on the growth of such businesses. It is for this reason that this study on the impact of broad based black economic empowerment on the growth of small businesses in the Rustenburg Local Municipality has been undertaken
The problem statement is, therefore, worded as follows:
"'1-'The impact of Broad Based Black Economic Empowerment on small business
development (SMME's) in the Rustenburg Local Municipality area'
3. Nature of the problem
The Rustenburg local municipality had to deal with the ever increasing problems of providing proper service delivery to its communities. However, the problem has been aggravated by higher number of people who came from various parts of the country to look for employment. The government approach to redress economic disparity created by the apartheid regime was translated into various strategies which did not do enough to alleviate the high levels of inequality and poverty. After seventeen years of democracy people still have the expectations similar to time prior to 1994.
The legislative provisions of the Broad- Based Black Economic Empowerment Act (No.53 9f 2003) provided certain premises under which a just society would be achieved. Black Economic Empowerment is defined as a means to the economic empowerment of all black people, including women, workers, youth, people with disabilities and people living in rural areas, through diverse but integrated socio-economic strategies that include, but are not limited to
• increasing the number of Black people that manage, own and control enterprises and productive assets;
• facilitating ownership and management of enterprise and productive assets by communities, workers, co-operatives and other collective enterprises;
• human resource and skills development;
• achieving equitable representation in all occupational categories and levels in the workforce;
• preferential procurement; and
• investment in enterprises that are owned or managed by black people.
The definition above provides a bench mark on which the success of the Public .._
Private Partnership, in this case the Rustenburg Local Municipality and the private sector have been able to achieve success in terms of improving the economic conditions of the blacks. The study undertook to investigate the impact of black economic empowerment on the development of small businesses as a means to improve the lives of the people. The support for the growth of SMMEs is regarded as being an essential component towards achieving equity in the development of the South African nation. Their contribution towards employment, GOP and export growth could be enormous. They are regarded as having been one of the best contributors to growth in developing countries.
4. Objectives of the study
4.1 Primal Objective
To evaluate the impact of broad based black economic empowerment on the growth of small businesses in Rustenburg Local Municipality.
4.2 Sub-objectives
a) To evaluate the contribution of BEE in the economic transformation of black people through acquisition and transfer of wealth to eradicate disparity; b) To determine whether the policy is succeeding in general in the economic empowerment of black people.
5. Primal and Sub-research Questions
The primal research question for this study is formulated as:
What impact does BBBEE and government support have on the creation and
sustainability of SMMEs in addressing economic imbalances within the previously marginalised population of South Africa in the Rustenburg area?
..,...
The sub-research questions formulated below are developed in an attempt to provide answers to the primal research question and achieve the objectives of this study.
Research Question 1
Has there been adequate support for black people to develop their own small businesses in the Rustenburg Local Municipality?
Research Que~tion ~
Has the pQiicy of Black Economic Empowerment assisted in growing the number of marginalised woma_n, youth a.nd the disabled in the Rustenburg Local Municipality?
Research Question 3
Has the implementation of BEE led to changes in appointment of black people in key
executive positions?
Research Question 4
Has the level technical and business skills acquisition improved the lives of black people since the introduction of Black Economic Empowerment?
Research Question 5
Have previously marginalised people sufficient access to basic education for their
development?
6. Scope of the study
The scope of the study related to the extent to which the research was covered,
since the study was a concentrated effort on aspects of broad based black economic empowerment. The scope was narrowed down to the evaluation of the impact of
black economic empowerment on the economic growth of small businesses owned by blacks in the Rustenburg Local Municipality. However, by providing a descriptive
analysis the reported investigation withm this dissertation of limited scope is merely to provide an overview of preliminary findings and further future avenues for
exploration. The time-span granted for this study is fairly short and does not allow for
an in depth analysis of the selected case-study nor a comparative analysis with other developing countries. Because the findings of this study relates specifically to South Africa, these findings should not be considered valid for other developing countries who may find themselves in a similar situation.
The motivation for this study stems from the dynamic nature with which disproportionate redistribution of wealth and empowerment of blacks appears to
continue to prevail even after seventeen years of democracy in South Africa. The introduction of government legislation to redress the legacies of apartheid created
another class of elite people, black people who are referred to as the black diamonds, leaving the majority of black people in dire poverty.
7. Importance of the study
It appears evident that, after seventeen years of democracy in South Africa, the larger majority of people who had been deprived of an economic livelihood have up to now not been sufficiently uplifted economically. The government's attempt of 'black economic empowerment' (BEE) had had minimal success. For this reason it was important to determine the impact of 'broad based black economic empowerment' (BBBEE) on the economic advancement of black people.
The study assessed the programmes of intervention and actions at overcoming economic disparities and entrenched inequalities, which continue to characterise the economy and act as deterrents to growth, economic development, employment creation and poverty eradication.
The investigation, therefore, determined whether 'broad black based economic empowerment' has brought about an increase in the number of black people who have a shared or full ownership and control of businesses, whilst, at the same time, also establish whether black people, including women in rural areas, are employed and appointed to executive positions.
8. Study environment
The research focuses on the Rustenburg Local Municipality as a case study and the impact of broad based black economic empowerment on the economic growth of black people. Issues of procurement, employment equity and enterprise development will be investigated. People of diverse racial origin and gender, comprising women and men, employers and employees, employed and unemployed, urban and rural people are to be included in the study.
9. Clarification of Concepts
The concept "black people" is a generic term which means Africans, Coloureds
and Indians.
The use of the term "broad based black economic empowerment" means
economic empowerment of black people including women, workers, youth, people with disabilities and people living in rural areas through diverse but integrated
socio-economic strategies that include, but are not limited to:
(a) increasing the number of black people that manage, own and control enterprises and productive assets;
(b) facilitating ownership and management of assets by communities, workers, cooperatives and collective enterprises;
(c) human resources and skills development;
(d) achieving equitable representation in all occupational categories and levels in the work force;
(e) preferential procurement;
(f) Investment in enterprises that are owned or managed by black people.
"Council" refers to the black economic empowerment Advisory Council established by Section 4 of the Broad Based Blac~Economic Empowerment Act, 2003. "Black
Economic Empowerment "(BEE) is best defined as a coherent socio-economic
process that directly contributes to the economic transformation of South Africa and brings about a steady increase in the number of black people who participate, manage, own and control portions of the country's economy as well as bring some balance to previous income inequalities.
"Tenderpreneurship" is a new concept that refers to a form of economic
participation whereby 'emerging' entrepreneurs and some government officials amass government contracts to enrich themselves at the expense of the previously disadvantaged masses of the society
10. Summary
The study is structured to follow a coherent sequence in order to provide some answers to the defined problel"!l and posed research questions. Chapter 1 has provided an orientation and background to the problem of black economic empowerment and the need for an evaluation of the impact of broad based black
economic empowerment on the growth of small businesses. The chapter ·also
covered the objectives of the study, the research problem and the investigative
questions to be answered by the investigation.
The next chapter covers an appropriate literature review of historical analysis of
economic transformation of South Africa and a descriptive account of the political
transition to economic development and the necessary background and theoretical foundation for this case study. This will be followed by chapters covering the
research methodology and design, the data analysis, and final conclusions and
CHAPTER 2: LITERATURE REVIEW 2.1 Introduction
This chapter explores literature on the Broad Based Black Empowerment Economic impact on the growth of small businesses. However, pertinent to this study is government legislation relating to black economic empowerment. The South African National Strategy for the development and promotion of small businesses r~mains in the forefront of the economic development of South Africa. Job creation and growth of the small business sector will remain South Africa's most urgent need. According to the study there seems to be consensus that black economic development ranks among the country's most urgent priorities. Since political transformation has been achieved, it remains for economic transformation to redress major challenges that plague South Africa.
It has to be noted right from the beginning that, since 1994, the ANC-Ied government has pursued several important goals, emphasizing equity, redistribution of wealth. However, proponents of this process have. become sceptical, partly because the implementation of BEE has mainly benefited politically connected individuals rather than the mass of the previously disadvantaged, and partly because South Africa's corporate sector continues to be dominated, managed and owned by minority whites (Innes, 2007:70-17).
A major challenge that plagues South Africa is the inequality between the different races. This inequality, which is perpetually reflected in wealth redistribution and economic status, leads to enmity and tension amongst them. The legacy of apartheid resulted in a significant imbalance in the redistribution of wealth, land and assets in South Africa. In this chapter, the necessity of BEE will be placed in context. The role of the government to implement BEE remains the focal point of every
component of government strategy to alleviate poverty and to bring about parity amongst various racial groups (Gqubule 2006:23). The majority of blacks still live in dire poverty, however. Progress has been achieved in other circles of black economic empowerment amid inconstancies and the refusal by some entities to acknowledge the irreversibility of this transformational process. There are some
concerns that the process enriches those close to the ruling1 party, the ANC. On the
other hand, the process has unintended repercussions by contrarily benefiting whites. Ther~e is a general outcry that the system does nOtt benefit the majority of black people.
2.2 Historical origins of aspirations about empowem1ent
South Africa has a rich history of political debate and participatory democracy, and this offers a number of possibilities for alternatives to the neoliberal paradigm. The aspirations of the masses and the working class were undleterred in defeating the
tyrannical ap•artheid regime. However, this defeat did not 910 without a price on its
head. The masses of people and the working class demanded not only the abolition of institutionalized racism. They also claimed the real redis1ribution of resources to
empower people and communities in meeting their basic needs and in addressing the historical imbalances created by racial capitalism. This demand aimed at things
such as proper housing, water and proper electricity servicE~s. the recognition of an
adequate ediUcation as a social right up to tertiary level, meatningful land reform. and
the end to oppressive and discriminatory practices in the workplace and the implementation of world-recognised labour standards.
The extent of participation by black South Africans in an economy from which they have historically been excluded has been an innermost aspiration of South African
policy makers since 1994. However, the existing literature has differed sharply on
whether or not black capitalist class could have develop1~d in South Africa and
prospered while apartheid was still in existence. There have mainly been three bodies of literature, namely the liberal-modernization theory, the dependency theory and the Mar>cist theory (Maseko, 2007:74). According to Maseti (2005:2), the debate
in the counttry raged ever since 1994 and was also joined by the ruling African
National Congress through its then Secretary General, Mr Kgalema Mohlante who also affirmed the need for the review of BEE application. Tl1is debate pitted former
comrades against one another, those who are the beneficiaries and those who are
Mbeki (1994.2) argued that "non racialism in politics has to be accompanied by non-racialism in the economy". By the time he became state president, however, he was associated with the more SP.ecific argument that "as part of the realization of the aim to eradicate racism in our country, we must strive to create and strengthen a black capitalist class" (Mbeki 1999). The emergent black middle class is the largest component in an increasing multiracial, national, middle class.
The BEE debates were also joined by those who always to resist change and fundamental socio-economic transformation. They always argue that BEE is nothing but a reversal of the apartheid system (Southall 2005:2). The deep-seated structural crises in the South African economy have to be addressed in one way or the other. Southall (2005:2) explains that historically disadvantaged communities still feel the pain 15 years after the dawn of the democratic breakthrough. It is for this reason that this study focuses on the impact of BBBEE on the growth of small businesses in the Rustenburg Local Municipality.
2.2.1 Black Economic Empowerment (BBE)
-...;.
Black Economic Empowerment (BEE), or the narrow-based approach, came into existence in 1994 when South Africa elected its first democratic government. This was followed by the establishment of the Broad-Based Black Economic Empowerment (BBBEE) Commission in 1999 and the subsequent strategies and policies to increase black ownership of businesses and to accelerate black representation in management (Booysen, 2007). Black Economic Empowerment (BEE), or the narrow-based approach, has been controversial even for those who support its underlying objectives. This legislation came into existence in 1994 when South Africa elected its first democratic government. Having failed dismally to address the disparity created by apartheid, this was followed by the establishment of the Broad-Based Black Economic Empowerment (BBBEE) Commission in 1999 and the subsequent strategies and policies to increase black ownership of businesses and to accelerate black representation in management (Booysen, 2007).
Most of the studies suggest there has been virtually no change in overall inequality and wealth. The result is that black people remain in poverty and are marginalized from ownership, control and management of economic activities. This crisis hinders growth prospects and competitiveness as a nation (BEEcom Report, 2006:1).
While in 1990 black people occupied 3% of the corporate management positions (Gray & Karp, 1993), in 1995 blacks owned only 1% of the total market value of the Johannesburg Stock Exchange (Cargill, 1999). BEE was introduced not only to rectify the imbalances of the past, but also to implement a growth strategy aimed at realising the country's full economic potential, increasing the skills levels, creating more jobs, and reducing poverty in a short period of time without the redistribution of existing wealth (Republic of South Africa, 2007b). lheduru (2004) therefore argues that, strategically, black bourgeoisie integration would also foster the creation of a successful capitalist economy in South Africa. The broad-based or the second phase of BEE was introduced because the narrow-based, or the first-phase, approach was found to limit the set objectives.
The second wave of BEE gave rise to reflection on how BEE could be accelerated in
'1-a me'1-aningful m'1-anner (J'1-ack 2007:107). For instance, Kovacevic (2007) indicates that, in 2003, 60% of the empowerment deals amounting to R25.3 billion went to the companies of only two black businessmen. Kovacevic (2007) argued that although BEE professes to promote the meaningful participation of black people in the economy, it actually fosters a political cronyism that benefits only a few elites. This is also echoed by Du Toit, Kruger and Ponte (2008) in their study on BEE in South Africa's wine industry It indicates that, while BEE has potentially provided a whole new spectrum of possibilities to established industries, the system of monitoring and verification proposed by the government and the industry charters
individuals rather than workers collectively or their communities.
2.2.2 Black Economic Empowerment and the Constitution
The true meaning of Black Economic Empowerment has its origin in the formation of FABCOS which was launched in 1998. BEE was about mobilizing black consumption and saving to achieve economic power. In November 1997, The Black Management Forum (BMF) passed a resolution calling for the establishment of a Black Economic Commission (BEECom). The premise under which this commission was established was that the notion of true empowerment as defined by black people does not exist. (Gqubule, 2006:3) The South African Department and Trade and Industry defined Black Economic Empowerment as "an integrated and coherent socio-economic process that directly contributes to the economic transformation of
South Africa and brings significant increases in the number of black people that manage, own and control the country's economy, as well significant decreases in inequalities. n
The BEEcom after intense deliberations, decided to adopt the widest possible definition of empowerment after realising the futility of trying to close the definition of the BEE concept. (Gqubule, 2006:11) The BEE report of 2006 encapsulates this approach by proposing a broader definition of BEE against which a workable and sustainable BEE programme can be designed and implemented as part of a new
Growth Plan for the economy. This definition has been tested in debates, in
consultations and in the media. It now has broad support. The BEEcom, therefore,
submits the following as the definition of BEE:
It is an integrated and coherent socio-economic process.
It is located within the context of the country's national transformation programme, namely the RDP. It is aimed at redressing the imbalances of the past by seeking to substantially and equitably transfer and confer the ownership, management and control of South Africa's financial and economic resources to the majority of its citizens.
It seeks to ensure broader and meaningful participation in the economy by black people to achieve sustainable development and prosperity. (BEEcom Report, 2006:2)
2.2.3 Results of the first phase BEE implementation
The overall ownership targets of BEE suggested that a quarter of the private economy should be owned by Black South Africans within a decade. This led to observers who believe there· is no such thing as a "free lunch" and regarded BEE as a mirage. According Cargill (2005:22) the shortage of black capital is the key obstacle to successful BEE. Black business people lack capital and, therefore, must borrow it from third parties and often at high cost. They acquire high risk equity using financial structuring that leaves them vulnerable in the event of economic downturn.
Banks have re-entered the BEE lending market, but they refuse to carry significant risk. Vendor companies increasingly facilitate transactions, providing loan guarantees, price discounts, or internal vendor financing at below market rates, an effective subsidy from established business to BEE investors (Cargill 2005:23). Finance for newcomers remains scarce, and deals continue to depend heavily on the appreciation of target companies' share prices. Jack 2006 warns that while 2005 was a great year for BEE deals, many companies paid high prices and used debt to finance deals. Cargill (2005:23-25) states that BEE companies face escalating debt -service requirements across the terms of their debt. In most cases company earnings will be insufficient to cover interest and capital repayment obliging them to sell down shares at the end of the term.
Wakeford (2004) observes that fronting is likely to migrate dOWQ to the supply chain
and underperforming" big businesses will t and employment equity performance by boo
ratings. The explosion of the problem of Jrllf'Hit'l'f relegated black business
managers to mere role players without any significant part to play in the operation of the business. BEE will also discourage some of the foreign investment that might otherwise compensate for the savings shortfall. Most importantly, international business may fear the lack of any clear BEE time frame. A period of ten years can
not confidently predict empowerment obligations will not be renewed or even be dramatically intensified.
Empowerment vehicles have already been implicated in the alleged abuse of preferential procurement to· bring kickbacks to party funds. Procurement scandals have meanwhile raised the spectre of alleged retro-kick backs to party funds. The then ANC secretary general, Kgalema Motlante, (2005) argued that "the central challenge facing the ANC is to address the problems that arise from the members susceptibility to moral decay occasioned by the struggle to control of and access to resources".
2.3 Broad Based Black Economic Empowerment
2.3.1 Transformation Charters
The South African government successfully developed a multi-faceted approach to achieve Broad-Based Economic Empowerment (BBBEE) that culminated in the release of the Strategy on Broad-Based Economic Empowerment in 2003. (File//E\the dti-News and events -Media Releases {Current)-Article#775htm 5/10/2007). The strategy outlines in detail the government ·s approach to BBBEE as well as some of the instruments it will implement to accelerate the de-racialisation of the economy and ensure a higher rate of economic growth. In this regard, the Codes of Good Practice and the drafting of the sector charters are primary interventions to promote BBBEE {File//E\the dti-News and events - Media Releases (Current) -Artticle#775htm 5/1 0/2007).
BEE legislation is expected to establish broad policy parameters and to facilitate the publication of a strategy document and guidelines to facilitate good corporate governance by companies with regards to BEE. The policy parameters and the strategy documents together will make up the Global Transformation Charter, which is expected to form the core of enabling BEE legislation. The Transformation Charter is an attempt by government to clarify its economic transformation
objectives. Its aim is to avoid uncertainties and instability in the markets similar to those experienced when the Mining Charter document was leaked last year (Epoliticssa Vol. 2 2003).
The Charter is expected to determine sector-specific targets for the transfer of equity into the hands of the previously disadvantaged, provide a broader definition of BEE and spell out actions and outcomes that are within BEE policy parameters. The Minister of Trade and Industry is soon expected to provide specifics for individual charters within each business sector. This may include the incorporation of BEE indicators adopted at the ANC conference. Such indicators include the concept of black ownership of small, medium and large business, participation in and control of firms by black people, the transfer of skills to Black people thus allowing for human development, particularly in senior positions, and contributions to job creation and new employment opportunities (Epoliticssa Vol. 2 2003).
2.3.2 BEE Codes of Good Practice
The Codes of Good Practice on BBBEE were formulated in line with the provisions of the BBBEE Act No. 53 of 2003. The purpose of Codes of Good Practice is to assist and guide the public and the private sectors in their implementation of the BBBEE Act. Essentially, the codes lay d~n principles and guidelines to facilitate and accelerate meaningful and sustainable implementation of BBBEE (File//E\the dti-News and events -Media Releases (Current)-Artticle#775htm 5/1 0/2007). Below is a brief summary of the most important aspects of the Codes. The summary deals with the Codes for the balanced generic score card, sector charters and ownership and management.
The government of South Africa (SA) introduced broad based black economic empowerment (BBBEE) as a nation building strategy. The act intends to empower 'all blacks' listed as Africans, Coloureds and Indians. The strategy is based on the Broad-Based Black Economic Empowerment Act No. 53 of 2003 in conjunction with its Associated Charters, the Codes of Good Practice and various Scorecards.
Initially, South African companies used the narrow-based black economic empowerment (BEE) criteria or the draft phase 1 of the Codes, and, as a result of
the nonalignment of the Preferential Procurement Policy Framework Act, -several private ahd government organisations still use the narrow-based approach. However, the implementation of the broad-based economic empowerment (BBBEE) of the Codes has introduced. new ways of defining and measuring BEE, which has led to compliance in the companies comparative BEE rankings (Grobler, 2006:25). Grobler (2006:26) suggests that in comparison to their narrow based versions, the
broad-based Codes and the Sector Charters not only encourage and formalise broad based empowerment, but they also place more emphasis on the inclusion and participation of women and new sector players, besides accentuating broad-based structures and financial sustainability. Hence, contrary to some claims about the 'failure of BEE' (Slaughter, 1999; Sono, 1999; Turok, 2000), a multiracial middle class, including a black capitalist class, has begun to emerge over the last decade in South Africa (lheduru, 2004).
The stated purpose of the Codes of Good Practice is to provide principles and guidelines that assist and advise both the public and the private sectors in their
implementation of the broad based BEE (Balshaw et al, 2008:75). Every organ of state and the public entity must take into account these codes when engaging in the relevant economic activity. The conte~ of the Codes of Good Practice are illustrated below:
Fig: 1.1 Codes of Good Practice
Statement OOO:General
Statement 003: Transformation Charters Sector Code guidelines
Statement 800: Frameworit for
Statement 801-807: Specifying the Qualifying Small Enterprises Scorecard and Measurement Principles
2.3.3 BEE Score Card
According to Janish (2006:11 ), the DTI published a set of codes in December 2004 in a draft format. These codes were to become the generic scorecard that companies who do not subscribe to an industry Charter would use to measure their empowerment status. A balanced scorecard is applied in interpreting and measuring broad based BEE, and it comprises three core measurement Components: Direct Empowerment, Human Resource Development and Indirect Empowerment (Balshaw et al, 2008:77).
2.3.4 Verification Agencies
The Codes of Good Practice oblige the verification agencies to identify and report on fronting. The Dti's South African National Accreditation System in theory withdraws accreditation from agencies that do not comply. Nhlapo (2008:11) states that it is imperative to have effective monitoring empowerment performance. It is for this reason that verification agencies were established. They would help to ensure that companies comply with the broad based black economic empowerment.
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2.4 The role of the stakeholders m the mall businesses development
Business organizations should play a pivotal role in economic growth and development. According to BEEcom (2006:53), in South Africa business organizations have come to reflect the apartheid past, and they, therefore, have had limited impact on the economic landscape. The underlying statement that guides the activities of Black Economic Empowerment Commission is the contents of the Reconstruction and Development Programme. It states that the domination of business activities by white business and the exclusion of black people and women from the main stream of the economic activity are major concerns for the progress of reconstruction and development. A central objective of the RDP is to de-racialise business ownership and control completely through focused policies of Black
Economic Empowerment. However, the real purpose is to make it easier for black people to gain access to capital for business development.
To achieve these aims the democratic government must ensure the following:
• that no discrimination occurs in financial institutions;
• that State and para-statal institutions will also provide capital for attainment
of BEE objectives;
• that Government must also introduce tendering procedures, which facilitate BEE
• and that special emphasis should be placed on training, upgrading and real participation in ownership.
South Africa's business organizations are structured along racial and ethnic lines. As a result, there are three national chambers and a national business federation, viz the South African Chamber of Business (SACO) representing predominantly English
speaking chambers and large corporations, the AHI, representing predominantly
Afrikaans speaking chambers, and NAFCOC, representing predominantly black
chambers and FABCOS, the federation of mainly trade associations. This
fragmentation of business by business Gllambers is often characterized by fierce competition for membership.
Emerging small businesses are often not members of these chambers and, as a result, have to decide on their mode of survival while those affiliated enjoy the privilege of mammoth support. Trevor Manual (2005:5) singled out the importance of Small to Medium and Micro Enterprises (SMME's) in alleviating poverty and reducing unemployment. The survival of these business organizations has been marred by problems amid the government initiatives to help with funding and skills
development. SMMEs, in the South African context, include business entities
ranging from traditional family business and medium-sized enterprises (employing
over a hundred people), down to survivalist self-employed business enterprises from the poorest stratum of our population (informal micro-enterprises) (Nhlapo 2008:17).
The development of this business sector has made an immense contribution to the
growth of the economy which, according to the government programmes of ASGISA
and JIPSA, has to reach the 6% growth rate. According to Ntsika (2000) SMMEs
provide a large part of employment services thus contributing considerably towards
economic growth. The same sentiments are echoed by the Department of Trade and
Industry (2003:19). The SMMEs contribute about 50% of formal employment and
contribute almost 37% of the country's GOP.
The Enterprise Development Element of the scorecard was introduced to assist and
accelerate the development of the operational and financial capacity of entrepreneurial enterprises that then contribute towards broad based BEE (Balshaw
&Golberg, 2008:82). According to Nhlapo (2008: 18) this element would investigate
investment made by co-operation amongst SMMEs that are owned and managed by previously disadvantaged individuals, and to ensure that BEE programmes
contribute to growth. According to Balshaw &Golberg (2008:82), the measures range from direct financial assistance, including loans, to non-monetary support provided to entrepreneurial enterprises. After approximately fifteen years of democracy it is
evident that not much had been done to mobilize economic transformation. This is the reason why this study on the impact of broad based black economic empowerment is being conducted.
2.4.1 Municipalities and BBE
The Constitution (Act 108 of 1996) of the South Africa (sections 152c and 153a) states that a local government must give priority to the basic needs of the community and should promote social and economic development of the community. The Local Government Transition Act 200 of 1993 (LGTA) and the Amendment Act of 1996 require municipalities to promote economic and social development. The (Integrated
Development Plan) IDP is a general framework under which all planning for key social, economic and environmental sectors falls (Makumula 2006:85). Local
government is a vehicle by which reconstruction and development could be realised.
businesses could thrive. As a result, municipa.lity service delivery must be effected bearing in mind the government policy of broad based black economic empowerment.
2.4.2 Restructuring ,PPPs and Licensing
The Ministry of Finance issued a Code of Good Practice for BEE in PPPs in August 2004. It concludes by acknowledging the government's further commitments to taking BEE in PPPs forward. The Code of Good Practice for BEE in PPPs was issued in terms of the Public Finance Management Act as National Treasury PPP Practice Note 3 of 2004. In recognition of the current challenges to BEE in PPPs, the positive BEE impact that PPPs can achieve, and complementary to the commitment of the Financial Sector Charter, the government undertakes proactively to achieve the following initiatives:
• to establish a PPP BEE equity facility that lowers the cost of capital to black shareholders in PPPs;
• to provide for a facility to support independent financial and legal advice to black enterprises bidding for, negotiating and implementing PPP projects and • to establish an internship programme to grow the number of experienced
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black transaction advisors in South Africa's PPP market.
The implementation of these three steps will establish PPPs as leading contributor to South Africa's BEE over the coming years. (Ministry of Finance: 30/11/2004)
2.4.3 Role of the Private Sector
The Gauteng Provincial Government strategy of BBBEE stresses private sector participation to promote sector growth (BBBEEStrategy_v16final6). Amongst others the following are envisaged:
• The implementation of sector transformation charters where these exist and the Dti Codes of Good Practice on BBBEE where charters are not in place; • Commitment to enhance the impact of BBBEE in its contractual arrangements
with the provincial government;
• Support for the growth of small and micro enterprises in the province through enterprise development programmes in partnership with the local government;
• Active participation in. business organizations and similar stake holders
-driven structures;
• The design of innovative financing options to enable the growth of small businesses;
• The enhancement of human resource development through comprehensive programmes within companies, through industry working groups, the SET As,
and in partnership with academic institutions.
2.4.4 Role of Civil Society
The role of the civil society in promoting BBBEE is of vital importance and to ignore this role would be seriously detrimental. However, this must include:
• Organizational development and capacity building of community-based organizations and other non-governmental organizations
• Active facilitation of community groups, labour and broad based groupings to participate in and benefit from BBfl,EE.
2.5 Factors of Black Economic Empowerment
When considering to what extent the Rustenburg Municipality has succeeded with
the "transformation project" in promoting the goals of BEE in creating a more equitable society since the first democratic elections in 1994, we look at both (i) the redistribution of economic resources and control, in the form of changes in the
distribution of income, employment equity, ownership and control of the economy,
and (ii) the empowerment of South Africans for meaningful participation in the
2.5.1 Ownership of the economy
A strategy for Broad-Based Economic Empowerment for the Gauteng provincial government affirms the fact th~t South Africa is characterized by vast gender and racial inequalities in property ownership. Historically, black people were denied access to productive land and could not own or effectively trade in properties (BBBEE Strategy_v6finai).These laws have affected the ability of black people to create or accumulate wealth, which has had a fundamental impact on the economic potential of South Africa and black people and women in particular. (BBBEE Strategy_v6final) During the formative years of our democracy, South Africa's capital policies were a miserable failure, with unencumbered black ownership at well below 1% the JSE Securities Exchange's market capitalization.
According to Gqubule, (2006:103), the capital reform project is in a state of crisis, and there is a need for deep introspection to answer the question as to why so much effort and resources deployed over decade have yielded so few results. It is clear that ownership is by far the most difficult indicator of the government's balanced BEE score card to achieve, which implies that the issue should get more, not less, prominence. He further argues that although a lot happens outside the JSE, listed
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companies (with a market capitalization that is double the country's annual GOP) account for a significant portion of the country's economy. Such companies have better disclosure than non-listed companies, which are impossible to monitor. The state of capital reform on the JSE is as good a proxy as will ever be obtained to determine the level of black ownership across the whole economy. Gqubule (2006:103) concludes that what is true for the JSE will generally be true for the whole economy, viz. that black ownership in most sectors of the economy is less than 1%. Black people own hardly anything in the South African economy.
According to De Klerk (2006:22), efforts to increase black share ownership in companies on the Johannesburg Securities Exchange have been disappointing. According to McGregor's 'Who owns whom in South Africa' (see De Klerk 2006:22). Blacks owned only 4% of the shares on the JSE compared to 69% for Whites and
27% for foreign interests. Much of the foreign-owned equity represented former
South African companies that had listed overseas since 1994. However, these
figures do not include shares owned in listed companies by state owned
corporations, or the black interest represented by pension funds, insurance
companies and other institutional investors. Black controlled companies accounted
for about 7% of the market capitalization in 1998, which declined rapidly to 2.2% in
2002. In 2002, BusinessMap conversely reported that 10% of the JSE by value is
currently in black hands. BEE transactions involved investment portfolios rather
operational control over productive assets, since it is estimated that over 80% of the
260 previously disadvantaged individuals that held 387 JSE listed companies in
September 2002 were non-executive.
The current list of beneficiaries of empowerment transactions is refuted by Gqubule
(2006:1 08) as being false; he alludes to the widely held perception that the ANC
politicians have looted the economy as being equally false, and avers that the
reality is that black people, including almost every ANC politician, own virtually
nothing in the South African economy. Of the less than 1% encumbered equity
owned black people in the JSE the bulk is owned by more than 2000 black managers at MTN, all of whom were never tijgh profile ANC politicians.
De Klerk (2006:22) provides a useful list of business men who are the main
beneficiaries to empowerment transactions. According to this report 60% of
empowerment deals during 2003 (R25. 3 billion) accrued to the companies of two
men, Tokyo Sexwale and Patrice Motsepe. Tokyo Sexwale's Batho Banke company derived 10% of the value of the ABSA empowerment deal which was valued at between R3.5 and RS billion, compared with only with only 1% that was set aside for workers as part of the employee share holder initiative. The directors at MTN
have received 70% of the benefit arising from the empowerment purchase by their
company Newshelf 664 of Transnet's 18.7% interests in MTN at the end of 2002.
Phutuma Nhleko owns 7.9% of Newshelf valued at R655 million. Three other
directors of Newshelf 664 have shares valued at R456 million each. In November
including Andile Nqcaba (Chairman of Didala and former DG of the Department of Communications), Gloria Serobe (former FD of Transnet), and Smuts Ngonyama (ANC skills). The consortium would buy 15.1% share of Telkom owned by Thintana (the former US-Malaysian str~tegic equity partner). This situation has been the cause of considerable introspection within the Black community and particularly with in COSATU which insists that workers should derive greater benefits from the process.
Although the Black Empowerment Commission set the goal of transferring 30% of the productive land of South Africa to Black South Africans by 2011, little has been achieved. According to the report, 70% of productive agricultural land remains in the hands of the whites. The government land programmes have succeeded in redistributing less than 3% of the country's land. In July 2004, the Minister of Agriculture, Thoko Didiza, announced a draft agricultural charter that set goals for Black South Africans to own 35% of agricultural business by 2008 and 50% of farm land by 2014. Farmers were expected to procure 70% of their inputs from black owned own crops and livestock. The proposals drew a negative response from farmers' organizations which complained that they did not reflect the consultations that had taken place, that the goals were unrealistic and created expectations that
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could not possibly be reached. The government recently announced steps to make more than 15 million hectors in the former homelands available for freehold ownership (De Klerk 2006:22-26)
2.5.2 Start up businesses
BEE has played a major role in facilitating the increase of black start up businesses; some have graduated to become sustainable businesses that are playing significant role in our economy today. However, there are several factors that have held the majority of small businesses down. According to Strydom (2006:50) the financial industry charter regards a black small medium enterprise SME with a turn over of R500 000 per annum to R20 million per annum as being a black company. A black company is more than 50% owned and controlled by black people. A black
empowered company is one that is more than· 25% owned by black people and where substa·ntial participation in control is vested in black people.
A BusinessMap report (2005: 15) highlighted the following as the shortcomings after the first five years of black empowerment:
• Empowerment has been too narrow, and focuses only on corporate ownership and control;
• BEE benefited only a limited pool of beneficiaries, hence the criticism that it has resulted only in the "enrichment of the few";
• A number of beneficiaries have shares in more than one company and hold positions as directors.
• Since empowerment is premised on acquisitions, there has been lack of organic growth in wealth and, therefore, a lack of the necessary sustainability over time;
• Too little attention has been paid to transforming corporations and transferring skills;
• Most black shareholders have not taken part in the running of the business and are, therefore, unable to understand the operations of
these companies, with strategic d~isions being left in the hands of white people;
• Venture capital was not made available to black businesses. This resulted in the use of complicated fund structures introduced to help black shareholders without capital to acquire large amounts of shares. More emphases fell on transferring control of major corporations to experienced black companies, with the old control structures remaining intact;
• The distortions of or deviations from business principles and practices have been considerable. In order to accommodate BEE, certain business rules and regulations, such as company law, had to be contravened;
• In an attempt to give previously disadvantaged individuals access to the business sector financiers and established white owned companies paid less attention to the conditions and requirements which prevail in any regular investment. Risk taking, reporting mechanism and performance
linked remuneration played little role in the corporate-related BEE arena;
and
• The government has been the primary motivator for empowerment related
investments and forc.ed companies to enter into equity relationships with black companies by specifying empowerment conditions for state contracts. While government has used its buying power to encourage commitments to training and affirmative action as well as small enterprise
and community development, its own approach to empowerment has been
ad hoc and without a coherent strategic framework. This has led to an increase in fronting tactics rather than proper implementation.
According to Nhlapo (2008:9) given these failures and criticisms, the government strategy has been seen as a failure in meeting the envisaged objectives of poverty alleviation and reducing unemployment. Government has seen the need to change
its strategy and introduced Broad Based Black economic Empowerment Act.
2.5.3 The funding mechanism of businesses
BEEcom (2001: 19} states that the history of Apartheid and colonialism is one of the ~
systematic destruction of productive assets owned by the black majority with the aim
of making black people completely reliant on the sale of labour. Rural people, who had built up a limited asset base before the dawn of colonialism, saw a progressive destruction of their productive assets. Viable economic activity and, therefore, black business was restricted to their type, area, size and the choice of their trading
partners.
According to Cargill (2005:22) the scarcity of black capital is the key complication to successful BEE. Black business people lack capital and, therefore, must borrow it from third parties and often at high cost. Cargill (2005:23) indicates that banks have re-entered the BEE lending market at a time when they have realized that several
empowerment charters have enforced empowerment transactions with major players, but they now refuse to carry significant risks. Vending companies
increasingly "facilitate" transactions, providing loan guarantees, price discounts, or
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internal vendor financing at below market rates as an effective "subsidy" from established business to BEE investors.
BEE companies face escalating debt-service requirements across the terms of their debt. In most cases company earnings will be insufficient to cover interest and capital repayments, obliging them as Cargill (2005, 23-5) observes, to sell down shares at the end of the term. The draft score card introduces "realization points" to ensure that the value accruing to empowerment actors is genuine. Points are to be awarded according to a degree to which BEE investments are realised, measured in terms of the net value of the shares.
The principle of "once empowered always empowered" as expounded and included in the gazette in April 2007, did not stand the test of time. Jack(2005,30) observes that even 'net equity' is 'merely a paper wealth' in that lock- in provisions prevent the sale of shares, in order to prevent strength of black equity that would lead to a loss of BEE credentials. It is also worth noting that many of the companies that have concluded BEE deals are large and relatively mature companies. These businesses have a comparatively low profile but also tend to grow more slowly over time. This further complicates the growth against interest challenge raised earlier. The direct implication is either that the economy needsto grow at a significantly faster rate than it currently is (while maintaining relatively low interest and inflation rates), which in turn improves the growth and the internal rate return of these companies, or we will not make the empowerment targets we have set ourselves. (Lucas-Bull 2007:134)
2.5.4 Distribution of Income
The vital issue to look into is what happened to the general welfare and wealth of individuals in the different classes since 1994. Given the inadequacy of available data it is difficult to analyze the extent to which specific classes have benefited or, indeed, lost. Speaking with certainty about the distribution of income the HSRC reports that South Africa 'S Gini coefficient, rose from 0, 69 in 1996 to 0, and 77 in 2001. In 2004, 57% of South Africans were living below the poverty line of R1 290
